Updated from 4:09 p.m. EST

Stocks rallied to a higher close Wednesday on the strength of technology shares, as investors drew encouragement from upbeat chatter on the semiconductor industry, while shrugging off weaker-than-expected data on the housing market.

The

Dow Jones Industrial Average finished up 148 points, or 1.8%, at 8623, and the

Nasdaq gained 45 points, or 3.3%, to 1419. The

S&P 500 added about 17 points, or 1.9%, to 914.

"Chips are definitely leading the bandwagon today," said Tom Schrader, a trader at Legg Mason. Schrader said semiconductor shares often are viewed in the market as a proxy for the economy, and that their strength often spreads.

Among individual sectors, semiconductors, biotech, oil services, retail, wireless, networking and banking shares were showing the most strength, while healthcare, gold and airline stocks were under pressure. The Philadelphia Semiconductor Index, or SOX, rose 8.3%, the AMEX Networking index gained 5.3% and the AMEX Biotech Index gained 3.5%.

Overall market breadth was positive. Advancers outpaced decliners 11 to 5 on the

New York Stock Exchange, where 1.5 billion shares changed hands. On the Nasdaq, winners beat the losers 11 to 5 on volume of 1.8 billion shares.

Tech shares got a boost from reports that companies at a Lehman Brothers semiconductor conference had been bullish, Schrader said. The optimism built on Tuesday's late momentum stirred by rumors that

Micron

(MU) - Get Report

said conditions were improving in the semiconductor industry. Also underpinning the positive tone was

Analog Devices

(ADI) - Get Report

, which posted results in line with estimates Tuesday, and provided a generally optimistic outlook on its conference call. The two stocks closed up more than 6% apiece.

Meanwhile, Soundview Technology defended the chip-equipment space, saying orders finally could be recovering. It mentioned

KLA-Tencor

(KLAC) - Get Report

,

Applied Materials

(AMAT) - Get Report

,

Teradyne

(TER) - Get Report

and several others as possible beneficiaries. All three companies received a nice pop in their share price.

Also, computer hardware giant

IBM

(IBM) - Get Report

said it plans to shift $1 billion from its information-technology and research budget to its new consulting and services division over the next three years. The new unit, On Demand Innovation Services, will employ 200 research consultants and specialize in high-end business transformation and technology consulting. Shares of Big Blue climbed 4.1% to $81.61 on the news.

Shareholders of

Cisco Systems

(CSCO) - Get Report

voted by a wide margin against using the company's $21 billion in cash to pay a dividend. Pressure was said to have been mounting on Cisco and

Microsoft

(MSFT) - Get Report

to use their surplus on a dividend, but Cisco's shareholders evidently believe the money can be better spent, and voted against it 10 to 1. Shares of the networking giant rose 5.7% to $14.38 on the Nasdaq. Microsoft climbed 3.5% to $56.62.

On the economic front, government data showed that

housing starts fell 11.4% in October to an annualized rate of 1.6 million, about 100,000 fewer than economists were expecting. Building permits, however, rose 1.7% to 1.76 million, slightly better than expected, suggesting cold weather depressed construction last month.

Siebel Systems

(SEBL)

was under some pressure earlier following published reports that a pension fund is alleging the company's chief executive knowingly certified inaccurate financial reports with the

Securities and Exchange Commission.

But the stock rebounded and jumped 4.3% to $8.

Also, the SEC requested information from

Interpublic Group

(IPG) - Get Report

about its recent $181 million revenue restatement. The agency is conducting an informal inquiry into the advertising company's bookkeeping mistakes, which included separate segments of the far-flung company recording the same revenue simultaneously.

In the retail space,

Talbots

(TLB)

reported a profit of 63 cents a share in the third quarter, in line with expectations on a 2% revenue increase, and said the fourth quarter was coming in as expected. The stock tacked on 3% to $29.60.

Homebuilder

Hovnanian

(HOV) - Get Report

said it expects 2002 earnings to be above its own previous guidance of $4 to $4.10 a share; analysts expected the same thing and were predicting $4.35 for the year, according to First Call. Hovnanian's shares advanced 2.1% to close at $32.35.

Treasuries were lower, with the 10-year note losing 24/32 to yield 4.07%. The 30-year bond was down 1 15/32, yielding 4.94%.

Overseas markets were mixed, with London's FTSE 100 up 0.2% at 4104 and Germany's Xetra DAX down 1.4% at 3163. In Asia, the Nikkei added 1.1% to 8460, while Hong Kong's Hang Seng was roughly unchanged at 9971.

Late selling sent stocks to a lower close on Tuesday, with the Dow falling 12 points to 8474 and the Nasdaq shedding 19 points to 1374.